United States Court of Appeals

For the First Circuit

No. 02-1799

AUTO EUROPE, LLC,

Plaintiff, Appellee,

v.

CONNECTICUT INDEMNITY COMPANY,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. D. Brock Hornby, U.S. District Judge]

Before

 Lynch, Circuit Judge,

Coffin and Campbell, Senior Circuit Judges.

Andrew J. Gallogly with whom Margolis Edelstein was on brief

for appellant.

Catherine R. Connors with whom Louise K. Thomas and Pierce

Atwood were on brief for appellee.

March 4, 2003
1 Auto Europe's complaint contained a second count for breach

of contract, which, as the magistrate judge noted, was subsidiary

to the primary count seeking a declaratory judgment on the duty to

defend: "[I]t necessarily follows that, if a duty to defend exists

and the insurer has refused to provide a defense, the contract has

been breached." Recommended Decision at 12. We agree and

therefore do not separately discuss the contract claim.

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COFFIN, Senior Circuit Judge. A Maine company, Auto Europe,

LLC, brought this diversity action against Connecticut Indemnity

Company ("CI"), seeking a declaratory judgment that the insurance

company has a duty to defend Auto Europe in a pending consumer

fraud suit. The district court, over CI's objection, concluded

that Maine is the proper venue for the coverage dispute, Maine

substantive law governs it, and CI has a duty to defend Auto

Europe. After careful review of the law and the record, we

conclude that CI's challenges to those determinations are

unavailing. We also affirm the district court's award of

attorney's fees against the insurer.1

I. Background

Auto Europe is a defendant in a lawsuit ("the Harter action")

filed in June 2001 by four Illinois residents who claim that the

Maine company and two other travel businesses "deceptively

concealed" an "add-on" to their charges for foreign car rentals.

The Harter plaintiffs contend that the defendants calculated

foreign sales tax on a car rental base price that included a nontaxable broker's fee, effectively increasing the brokers' fees in

the guise of a charge they claimed was a foreign tax. The
2 Auto Europe also sought defense from another of its

insurers, Commercial Union, based on a different policy.

Commercial Union sought a declaratory judgment in Illinois on its

duty to defend, and after rejecting Auto Europe's attempt to

transfer that action to Maine, the Illinois court ruled that

Commercial Union did not have a duty to defend based on an

exclusion not contained in the CI policy.

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complaint alleged that the price information given to consumers was

"designed to mislead and conceal" the nature of the additional

charge, and it accused the defendants of engaging in a "fraudulent

scheme of overcharges." The complaint alleged various violations

of federal and state law, including both the Maine and Illinois

consumer fraud acts.

CI coincidentally insured all three Harter defendants under

separate policies, each of which provided the same coverage. Auto

Europe's policy promises payment for all sums that the insured

becomes obligated to pay because of "any negligent act, error or

omission of the 'insured' . . . in the conduct of 'travel agency

operations' by the 'named insured.'" The policy excludes coverage,

however, for "liability arising out of any act, error or omission

which is wilfully dishonest, fraudulent or malicious, or in wilful

violation of any penal or criminal statute or ordinances, and is

committed (or omitted) by or with the knowledge or consent of the

'insured.'"

Based on the exclusion, CI refused to defend Auto Europe in

the Harter action, and Auto Europe thereafter filed this suit.2

CI filed a counterclaim in the Maine litigation, seeking a
3 The district court also dismissed without prejudice, as

premature, CI's request for a declaratory judgment on

indemnification.

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declaratory judgment that it had no duty to defend, and it filed

suit in Illinois against all three Harter defendants, seeking that

same relief. It also filed a motion in Maine to transfer venue of

Auto Europe's action to Illinois.

The magistrate judge in Maine denied the transfer motion,

determined that Maine law applied to the action, and concluded that

CI had a duty to defend Auto Europe. The district court, after a

de novo review that included oral argument, affirmed the decision

denying transfer of venue and adopted the magistrate judge's

recommendation that summary judgment be granted for Auto Europe on

the duty to defend. Under Maine law authorizing an award of

attorney's fees to an insured when the insurer's duty to defend was

"clear," the district court awarded reasonable fees and costs to

Auto Europe.3

Subsequently, the district court in Illinois also ruled, in

the lawsuit filed by CI, that the insurer had a duty to defend in

the Harter action. That ruling, applying Illinois law, was not

directly applicable to Auto Europe, however, because the Maine

company had been dismissed from the Illinois proceedings. 

In its appeal of the Maine decision, CI argues that the

district court, as reflected in the decisions of both the

magistrate judge and district judge, erred on the procedural issues
4 The motion invoked 28 U.S.C. § 1404(a), which states: 

For the convenience of parties and witnesses, in the

interest of justice, a district court may transfer any

civil action to any other district or division where it

might have been brought.

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of venue and choice of law as well as in finding a duty to defend

under Maine law. The insurer further objects to the imposition of

attorney's fees and costs. We address each issue in turn. 

II. The Motion to Transfer Venue4

The propriety of the venue ruling warrants little discussion.

The magistrate judge fully considered and discussed CI's motion and

its judgment, particularly when affirmed by the district court, is

entitled to considerable deference. See Osband v. Woodford, 290

F.3d 1036, 1041 (9th Cir. 2002) (noting that magistrate judge's

pretrial order is reversible by the district court, under 28 U.S.C.

§ 636(b)(1)(A), only if it is "'clearly erroneous or contrary to

law,'" and that same standard applies to appellate review); Phinney

v. Wentworth Douglas Hosp., 199 F.3d 1, 4 (lst Cir. 1999) (same);

see also Coady v. Ashcraft & Gerel, 223 F.3d 1, 11 (lst Cir. 2000)

(appellate standard of review for venue motion is abuse of

discretion).

Although it may have been more efficient to determine CI's

duty to defend with respect to all three Harter defendants in the

same forum, we do not agree that the district court was obliged to

transfer the case to Illinois. Its reasons for declining to do so
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were sound and appropriate, focusing on the weight accorded to

plaintiff's choice of the forum in which it is located, the

unlikelihood of any witness inconvenience because of the

probability of a document-based determination of the duty to

defend, and the absence of any compelling reason related to

judicial economy. We therefore find no error in the court's denial

of the transfer motion.

III. Choice of Law

CI next challenges the district court's decision to apply

Maine law to the coverage dispute. A federal court sitting in

diversity jurisdiction must employ the choice-of-law principles of

the forum state, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.

487, 491 (1941); Crellin Techs., Inc. v. Equipmentlease Corp., 18

F.3d 1, 4 (lst Cir. 1994), and the district court's choice of law

pursuant to the state framework is reviewed de novo, Crellin

Techs., 18 F.3d at 4.

Under Maine law, when an insurance contract does not specify

the jurisdiction that should govern disputes arising under it,

the rights and duties of the parties . . . are to be

determined at the forum level by the local law of the

state which, with respect to that particular issue, has

the most significant relationship to the transaction and

the parties. Specifically, in a casualty insurance

contract . . . the validity of the contract and the

rights and duties created thereby, are to be determined

. . . by the local law of the state which the parties

understood was to be the principal location of the

insured risk during the term of the policy, unless with

respect to the particular issue involved, some state has
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a more significant relationship to the transaction and

the parties . . . . 

Baybutt Constr. Corp. v. Commercial Union Ins. Co., 455 A.2d 914,

918 (Me. 1983), overruled on other grounds, Peerless Ins. Co. v.

Brennon, 564 A.2d 383 (Me. 1989) (adopting Restatement (Second) of

the Law, Conflict of Laws 2d (1971) [hereinafter "Restatement"], §§

188, 193).

As with the venue ruling, the magistrate judge offered a

thoughtful assessment of the choice of law question. Noting that

the underlying complaint purported to assert the claims of a

nationwide class against Auto Europe, he rejected the relevance of

the location of the named plaintiffs' individual transactions

because "an unknown number of plaintiffs in an unknown number of

locations may have claims that fit within the purported class." He

also noted that the complaint alleged that Auto Europe's principal

place of business was in Portland, Maine, and because no other

business location is identified, "[b]y terms of the complaint Auto

Europe could only have acted in Maine." Recommended Decision at 7.

The magistrate judge thus viewed Maine as "the principal location

of the insured risk," and ruled that, under Baybutt, Maine law

should apply.

CI contends that the law of either Florida or Illinois would

be more appropriate than Maine law because both "would appear to

have more significant interests in this coverage litigation and

greater contacts with the transactions underlying the dispute than
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does Maine." According to CI, Florida is significant because the

contract that provides the insurance coverage at issue in this case

was negotiated and delivered there to Auto Europe's corporate

parent. The policy insured more than two dozen affiliates or

subsidiaries in a variety of locations, and Auto Europe apparently

was the only one located in Maine. CI also cites Illinois' central

importance to this case as the home state of the named plaintiffs

in the Harter litigation. The two plaintiffs who did business with

Auto Europe booked their rental cars through local travel agents in

Chicago, and Illinois is also where the underlying lawsuit is

pending.

We can easily eliminate the law of Florida as more appropriate

than Maine law for resolving the coverage issue. Our reading of

the authorities indicates that a policy covering numerous related

companies located in different states would be deemed a multiple

risk policy that, for Maine choice of law purposes, would be viewed

in a particular case as if a separate policy had been issued to

cover each entity. See Baybutt, 455 A.2d at 919; Restatement, §

193, comment f. Because Florida's status stems only from its role

with respect to the overall policy, its significance in this case

thus drops away, and the question becomes whether Maine – Auto

Europe's principal location – should provide the substantive legal

principles, or whether, "with respect to the particular issue
5 Paragraph 82 of the amended complaint alleges that "the

deceptive pricing and other deceptive acts took place at the Auto

Europe's principal place of business which is Maine . . . ." 

6 We recognize that the location of the risk in Baybutt and

similar cases, see, e.g., Gates Formed Fibre Prods., Inc. v.

Plasti-Vac, Inc., 687 F. Supp. 688 (Me. 1988), differs from the

scenario here because the underlying plaintiffs in those cases were

physically located where the insured activity – the alleged harm –

occurred. This is not a difference that affects our analysis,

however. An insured risk is "'the object or activity which is the

subject matter of the insurance,' and 'has its principal location

. . . in the state where it will be during at least the major

portion of the insurance period.'" Id. at 690 (quoting

Restatement, § 193, comment b). The insured risk here was the

conduct of a travel agency whose only business location was in

Maine; the physical location of its customers does not change the

location of the risk.

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involved, [Illinois] has a more significant relationship to the

transaction and the parties," Baybutt, 455 A.2d at 918.

We think the district court got it right. Auto Europe, a

Maine business with offices only in Maine, is alleged to have

committed consumer fraud by its conduct in Maine.5 Although the

named plaintiffs live in Illinois, and presumably for that reason

found it convenient to file their lawsuit there, Illinois cannot be

said to have a more significant relationship to the parties and

transaction than does Maine. To be sure, the plaintiffs' home

state has a substantial interest in ensuring that its citizens are

not defrauded by out-of-state companies operating through local

agents. Under Maine's choice of law principles, however, its own

substantial interests take precedence because, as Auto Europe's

home base, Maine is "the principal location of the insured risk."6
7 We offer two passing thoughts. First, as the magistrate

judge observed and our discussion reveals, CI's complaint about

inadequate opportunity for discovery is without force; the

information it sought to obtain, regarding other insureds on the

policy with Auto Europe, was unnecessary for the choice-of-law

inquiry because the information already available showed that the

covered businesses were located in various states. Second, on the

primary substantive issue – the duty to defend – the choice of law

is likely of no consequence because the relevant law in Maine and

Illinois, and probably Florida as well, appears to be the same.

See infra at 11-13. 

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The district court therefore correctly ruled that Maine law governs

the coverage dispute.7

IV. Duty to Defend

Under Maine law, the duty to defend is determined by means of

the comparison test: the complaint in the underlying lawsuit is

compared with the insurance policy to ascertain if "'there exists

any legal or factual basis which could be developed at trial which

would obligate the insurers to pay under the policy.'" United Bank

v. Chicago Title Ins. Co., 168 F.3d 37, 39 (lst Cir. 1999) (quoting

NE Props., Inc. v. Chicago Title Ins. Co., 660 A.2d 926, 927 (Me.

1995)); see also Me. Mut. Fire Ins. Co. v. Gervais, 715 A.2d 938,

940 (Me. 1998).

If the complaint shows even a possibility that the events

giving rise to it are within the policy coverage, the

insurer must defend the suit. Any ambiguity must be

resolved in favor of a duty to defend.

Mass. Bay Ins. Co. v. Ferraiolo Constr. Co., 584 A.2d 608, 609 (Me.

1990); see also York Ins. Group of Maine v. Lambert, 740 A.2d 984,

985 (Me. 1999).
8 An act may be deceptive under the statute "even though the

defendant had no purpose to deceive and acted in good faith."

Binette v. Dyer Library Ass'n, 688 A.2d 898, 906 (Me. 1996).

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The magistrate judge, affirmed by the district court, found a

duty to defend based on the possibility that the proof at trial

would establish a non-intentional violation of the Maine Unfair

Trade Practices Act (UTPA), Me. Rev. St. Ann. tit. 5, §§ 205-A-214

(West 2002).8 CI contends that the district court erred because

the Harter complaint alleges only intentional fraud, bringing it

within the policy exclusion for willfully dishonest or fraudulent

acts. CI cites caselaw from Illinois and Florida for the

proposition that coverage is unavailable under exclusions similar

to the one here when the complaint is limited to allegations of

intentional conduct, even if the facts would have permitted

recovery based on theories not covered by the exclusion. See,

e.g., Fed. Ins. Co. v. Applestein, 377 So.2d 229, 231 (Fla. App.

1979) (holding that, notwithstanding policy coverage for libel and

slander generally, allegations that comments were made "'with

malice'" and "in a specific 'attempt to discredit'" the underlying

plaintiff "completely negate coverage by conclusively establishing

that the exclusion applies"); United Fire & Cas. Co. v. Jim Maloof

Realty, Inc., 435 N.E.2d 496, 498-99 (Ill. App. 1982) ("[S]ince the

factual allegations of the complaint are premised upon only one

theory of recovery, that of intentional fraud, and do not fall

within the potential coverage of the insurance policy, United has
9 In the action filed by CI in Illinois against the other

Harter defendants, the district court observed that Maine and

Illinois law are "analogous . . . on an insurer's duty to defend,"

Conn. Indem. Co. v. Auto Europe, LLC, 2002 WL 1806891 (N.D. Ill.),

at *5, and, applying Illinois law, the court found a duty to defend

the claim brought under the Illinois consumer fraud statute, noting

that "[t]he complaint does not clearly preclude . . . liability

under a reckless or negligence standard, or even through proof of

an innocent misrepresentation," id. at *4. See also Knoll Pharm.

Co. v. Auto. Ins. Co. of Hartford, 152 F. Supp.2d 1026, 1034 (N.D.

Ill. 2001) ("If the underlying complaint alleges facts that fall

within, or even potentially within, the coverage outlined in the

relevant policy, the insurer owes a duty to defend."). Florida

cases also impose a duty when there is a "potential" for coverage.

See, e.g., Lime Tree Vill. Cmty. Club Ass'n, Inc. v. State Farm

Gen. Ins. Co., 980 F.2d 1402, 1406 (11th Cir. 1993) ("The insurer

must defend when the complaint alleges facts which fairly and

potentially bring the suit within policy coverage."); Cabezas v.

Fla. Farm Bureau Cas. Ins. Co., 830 So.2d 156, 158 (Fla. App. 2002)

("If the allegations in a complaint when fairly read[] allege facts

which create potential coverage under the policy, the insurer must

defend the lawsuit.")(emphasis omitted). 

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no duty to defend its insureds."). CI argues that the Maine

comparison test requires the same result, although it notes that no

Maine cases have explicitly addressed the circumstance of a

complaint alleging only intentional conduct where recovery based on

less-than-intentional conduct also could have been sought.

Although we doubt that CI could prevail even under the law of

Florida or Illinois where, as here, the relevant cause of action

does not require intentional conduct for recovery,9 we are certain

that, under Maine law, CI's argument is without merit. We simply

note, in passing, that some of the cases relied upon by CI are

distinguishable because they involved either underlying causes of

action limited to intentional conduct, see, e.g., Ill. Farmers Ins.
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Co. v. Preston, 505 N.E.2d 1343, 1347 (Ill. App. 1987) (noting that

the claim assertedly within the policy's coverage was based on 42

U.S.C. § 1983, which offers "no remedy . . . based upon the mere

negligence of the defendant"); Jim Maloof Realty, Inc., 435 N.E.2d

at 498-99 (observing that underlying complaint "essentially states

one cause of action, that of intentional fraud"), or factual

situations that foreclosed the possibility of unintentional

conduct, see, e.g., Rubloff, Inc. v. Am. Nat'l Fire Ins. Co., 1997

WL 264327, at *6 (N.D. Ill.) ("negligent conduct is not even a

theoretical possibility under [the] complaint"). In other words,

in these cases, the theory of relief chosen by the underlying

plaintiff depended upon a showing of deliberate conduct, placing

any possible recovery outside the policy's coverage, and leaving

the insurer with no duty to defend.

Here, by contrast, not only does the cause of action at issue

– the Maine UTPA – permit liability in the absence of an intent to

deceive, but Maine law also broadly extends the duty to defend to

claims that could be developed either legally or factually at trial

so as to fall within the policy's coverage. Like the district

court, we think it certainly possible in this case that the facts

as developed at trial would reveal an improper practice that was

unaccompanied by an intent to deceive. Thus, even if a jury

rejected the Harter plaintiffs' precise theory of deliberate

misrepresentation, they would retain the possibility of recovery
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under the UTPA. CI consequently is obliged to defend the Harter

lawsuit. See, e.g., Me. Mut. Fire Ins. Co., 715 A.2d at 942

("[B]ecause [the underlying defendant] may be found to have

intentionally inflicted emotional distress without subjectively

intending or foreseeing the alleged distress suffered by [the

plaintiff], the exclusion for intended or expected bodily injury is

inapplicable.").

In sum, when the cause of action alleged as the basis for

liability does not include elements that would foreclose coverage,

and where the events giving rise to the complaint may be shown at

trial to fall within the policy's coverage, Maine law entitles the

insured to a defense. See id. Indeed, we suspect that Maine's

inclusive approach to the duty to defend is designed precisely for

circumstances such as these – where a narrow reading of the

complaint's factual allegations might preclude coverage, but the

alleged cause of action is sufficiently broad that a modified

version of the facts could be developed at trial to show liability.

 The district court therefore properly ruled that CI has a duty

to defend the Harter lawsuit.

V. Attorney's Fees

Auto Europe sought reimbursement of the attorney's fees

incurred in pursuing this declaratory judgment action, and

following the district court's grant of that request, the parties

stipulated to the amount of $42,675.91. Maine law authorizes an
10 As our prior discussion suggests, see supra at 11-12, a

quick review of Florida cases leaves some ambiguity on whether

allegations of intentional conduct eliminate the duty to defend

pursuant to an intentional acts policy exclusion even when facts

could be developed at trial to support judgment for the plaintiff

based on non-intentional conduct. See, e.g., Applestein, 377 So.2d

at 231 (holding that allegations of malice and deliberate "'attempt

to discredit'" negated coverage). 

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award of attorney's fees against an insurer when its "duty to

defend is clear from the policy and the pleadings," Maine Mut. Fire

Ins. Co. v. Gervais, 745 A.2d 360, 362 (1999) (internal citation

omitted).

To determine whether a duty to defend is "clear" for

purposes of awarding attorney fees, a court must evaluate

state law regarding an insurer's duty to defend as it

existed at the time the insurer initiated the declaratory

judgment action.

Id. Our review of the district court's decision is de novo. Id.

Without elaborating, the district court concluded that Auto

Europe was entitled to fees "because the duty to defend was and is

clear." We agree with that conclusion. Although CI might

legitimately have entertained some doubts about whether the

comparison test inevitably required a defense in all three relevant

jurisdictions,10 the case law in each is unequivocal in directing

that any lack of clarity must be resolved in favor of the insured.

See Ferraiolo Constr. Co., 584 A.2d at 609 ("Any ambiguity must be

resolved in favor of a duty to defend.") (Maine law); Wilkin

Insulation Co., 578 N.E.2d at 930 ("All doubts and ambiguities must

be resolved in favor of the insured.") (Illinois law); Lime Tree
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Vill. Cmty. Club Ass'n, 980 F.2d at 1405 ("If the allegations of

the complaint leave any doubt as to the duty to defend, the

question must be resolved in favor of the insured.") (Florida law).

Regardless of which of the three state's laws applied, the

potential for coverage existed at the time CI refused to defend

Auto Europe. The duty to defend was therefore "clear" and,

accordingly, the district court properly awarded attorney's fees.

VI. Conclusion

The district court properly concluded that this insurance

coverage dispute should be heard in Maine and resolved pursuant to

Maine law. Because CI's duty to defend was clear, the district

court properly awarded attorney's fees to Auto Europe.

The judgment of the district court is therefore affirmed.